2019 (1) TMI 1713 - Tri - Companies Law

Rights of petitioner as shareholder - transfer of shares - time limitation - HELD THAT - Admittedly, there has been a lapse on the part of the Petitioners also, in agitating their grievances, but the fact is that they are in possession of the share Certificates, in original. Under no stretch of imagination can we say that the Petitioners have acquiesced their rights as shareholders of the Company, no matter whether their name is reflected in the Register of Members or not. It is a settled law that the shares are goods and when the shares certificates are physically tendered at the time of transfer, the transfer is complete, and the absence of their names in the Register of Members cannot extinguish their rights as shareholders. The law of limitation does not apply to a case where, there is a continuous cause of action and it is also to be noted that the cause of action accrues from the date of knowledge on the part of the petitioners in coming to know of the irregularity committed by the respondents. Evidently, it is only after 2016, the Registrar of Companies was informed of the irregularities committed by the respondents. No matter whether the law of limitation applies or not, the fact remains that the petitioners, not minding their earlier lapses, have come forward to enforce their rights as shareholders of the company within the time acceptable under law. In view of the prima facie case established in favour of the petitioners, the balance of convenience completely rests in favour of the petitioners and if the respondents take any steps for alienation of any assets of the company, the petitioners would be put to irreparable loss. List this matter on 25.01.2019 for inspection of records in the court for consideration of the court.

Summary

Issues:
Shareholding dispute, removal as directors, law of limitation, possession of share certificates, updating records, law of limitation, balance of convenience, production of statutory records, interim relief, alienation of company assets.

Shareholding Dispute:
The Petitioner claimed to be 100% shareholders of the company but were removed as directors in 2012. The Respondents denied this claim, stating that the Petitioners resigned as directors in 2012 and the law of limitation applies as the cause of action to claim shares had lapsed. The Share Certificates produced by the Petitioner showed valid transfer of shares with the Respondents' signatures. The Tribunal found that the Petitioners, possessing the original Share Certificates, had not acquiesced their rights as shareholders, regardless of their names not being in the Register of Members.

Updating Records and Law of Limitation:
The Tribunal noted a lapse on both sides in agitating grievances but emphasized that physical tendering of share certificates completes the transfer, preserving shareholder rights. The law of limitation does not apply where there is a continuous cause of action, and the cause of action accrues from the date of knowledge of irregularities. The Registrar of Companies was informed of irregularities committed by the Respondents only after 2016, within an acceptable timeframe under the law.

Balance of Convenience and Interim Relief:
A prima facie case was established in favor of the Petitioners, with the balance of convenience favoring them. Concerns were raised about potential irreparable loss to the Petitioners if the Respondents were allowed to alienate company assets. The Tribunal directed the Respondents not to alienate any assets until further orders and scheduled a date for inspection of records in court.

Production of Statutory Records:
The Respondent's counsel refused to provide statutory records to the Petitioners but agreed to produce them in open court for Tribunal inspection only. The Tribunal deemed this submission untenable, stating that the Petitioners were entitled to inspect the records as they had prima facie established their shareholding. Consequently, the Respondents were directed to produce the entire statutory records for inspection by the court and the Petitioners.

In conclusion, the Tribunal found in favor of the Petitioners, emphasizing their rights as shareholders and directing the Respondents to produce statutory records for inspection. The interim relief included a prohibition on alienating company assets, with a scheduled court date for further consideration.